Buying a home is serious business.
A home is the single largest investment that most people make in their lifetime. Your home is not only the place that you will live, but is also a huge financial investment.
Clearly the first step in selecting a home is to focus on cosmetic improvements, overall condition, location, price and special features.
So you found a home and wrote a contract. What comes next?
For a hassle-free purchase, hire a buyer’s agent:
My last post outlined the steps that every buyer needs to do between contract acceptance and closing. The items below are additional tasks that need to be performed in order to ensure that you are making a sound financial investment and that the purchase closes smoothly.
I take care of all of these items for my clients. If you are hiring a buyer’s agent, make sure that these items are on their checklist.
If you decide to go it alone, buying from a FSBO or allowing the listing agent that is representing the seller to assist you, make sure that none of these details fall through the crack.
1. Appraisal
If you are taking out a mortgage to finance the purchase, your lender will order an appraisal. The purpose of the appraisal is not to tell you that you got the house for a bargain, or that you paid $2000 too much. The appraiser is hired by the lender to make sure that IF you stop paying your mortgage and the bank has to foreclosure, that the house will be able to be resold for at least the sale price.
Appraisers do have guidelines that they have to follow to determine which homes they can use as comparisons, but it is a subjective process. Appraisers pick 3 nearby comparable homes. Then they add and subtract dollar amounts to adjust for differences between the homes. Finally, appraisers use their own judgment to assign an appraised value to the subject property. Get 3 different appraisers, and you’ll get 3 different values. However, the values are likely to be very similar unless the home being purchased is unique with no true comparable properties.
My experience is that appraisers take into account that a buyer and seller agreed on a price (yes…appraisers have a copy of the contract before they assign a price). Unless the sale price seems extremely inflated, meaning it would be unlikely that another buyer would agree to that price, the appraised value almost always comes in at or just slightly above contract price.
A few years ago, it was rare for a property under contract to appraise for less than the agreed upon sale price. Times have changed in the last few years and it is more common to see homes that appraise for less than the sale price. Every buyer should have their agent run their own comps before making an offer, but an independent appraisal means that an unbiased party agrees that the price is reasonable.
My job as an agent includes making sure that the lender has ordered the appraisal (or I will order one if it is a cash deal) and making sure that we have an appraisal value that is equal to or higher than the contract price prior to the deadline.
2. Loan commitment
If you are purchasing a home that is contingent upon financing, you have a safety net that allows you to get out of the contract and get your earnest money back if you get denied financing. However, the financing contingency only protects you if you notify the seller that you were denied financing by the deadline set in the contract.
Once you pass the financing contingency deadline, you are legally obligated to close on the contract even if you are later denied for a loan. If you can’t close you will be breaching the contract. The consequences can range from forfeiting your earnest money to getting sued.
My job as an agent includes making sure that the lender has issued a full loan commitment prior to the financing contingency deadline AND that the loan commitment is not predicated upon items that could result in a future denial. I will keep in touch with the lender to make sure that the deadline is met and will review the loan documents to confirm that it is a clean loan commitment.
3. Title insurance
Before you purchase a home, you’ll want to know that the seller can transfer free & clear title to you. Free & clear title means that there are no other owners of the property not involved in the sale, and that there are no judgments, liens or outstanding debts related to the house that would become your responsibility as the new owner.
In St. Louis, title searches are performed by ‘title companies’ (some regions use lawyers to perform this task). Once the title search is completed, the title company will issue a title insurance policy to the new owner. This policy protects the new owner if an issue was overlooked. For example, if someone knocks on your door a year after closing and says that he was part owner of the home and didn’t agree to sell, you would call the title company. You would also be protected if a contractor claimed that they performed work on the house but had not been paid.
If an issue does come up after closing that is covered by the title insurance, then the title company would bear the cost of legal fees to resolve the issue.
My job as an agent includes forwarding all of the documents that are needed by the title company so that they can provide a clear title binder by the deadline identified in the contract. I will stay in touch with the title company and make sure that my clients understand any potential issues.
4. Property survey
The title insurance policy usually includes property survey coverage. In order to make sure that there are not any survey defects, the title company will order a survey.
In order to get the most complete coverage for survey defects, a buyer should request a boundary survey. While a spot survey does give the buyer a drawing of the lot, home and improvements (an improvement is anything added to the land such as decks and driveways), the spot survey does not confirm the boundary lines. This means that the survey will show you a drawing, but it is not checking to see if the improvements near the edge of the property are completely on the correct side of the property line.
Common survey defects include driveways, retaining walls and fencing that actually cross over the boundary and encroach on a neighbor’s property.
If there is a survey defect, the item crossing over the property line can be removed or an easement can be granted to allow a neighbor to use that small piece of land. Usually establishing an easement is the best solution if the encroachment is less than a foot. The easement protects the homeowners from having to remove the item in the future in the case that either one of the property owners would sell and the new owner objects to the encroachment.
My job as an agent includes helping my clients understand the differences between a boundary and a spot survey so that they can make an informed decision on if they want to spend the extra money for the boundary survey. I then follow up with the title company to make sure that the survey is completed by the survey contingency deadline and review the survey to confirm that there are no defects. If there are defects, I assist my client in deciding how they want to proceed to resolve the issue.
5. Municipal & fire district inspections
The St. Louis area consists of many incorporated municipalities and additional unincorporated land. St. Louis County alone has 91 municipalities. Many of these cities require municipal occupancy inspections at the time of a property sale. St. Louis County has recently changed their policy so that all homes in unincorporated parts of the county now must pass a county municipal home sale inspection. St. Louis City also has conservation districts that require inspections for some parts of the city.
In addition, parts of St. Louis County also require fire district inspections at the time of a home sale.
My job as an agent includes identifying which inspections are required for a particular property and making sure that the seller has provided the buyer with passed inspections prior to closing.
6. Laclede Gas inspection
In the St. Louis region, the seller is responsible getting a Laclede Gas inspection and making repairs if anything fails the inspection. If the property is located outside of the service area for Laclede Gas, then a gas inspection needs to be arranged with a licensed contractor or the local gas utility provider.
My job as an agent includes getting the Laclede Gas inspection from the seller along with repair receipts for any items that failed the inspection.
7. Any contract agreements
Every contract is different.
In the past, some of my buyer’s contracts have included items such as:
- Cleaning the carpets prior to closing
- Replacing broken windows
- Removing wallpaper and repainting rooms
- Removing a baby gate and patching the holes in the wall
- Removing or encapsulating asbestos
- Installing a radon mitigation system
- Replacing a roof
My job as an agent includes making sure that the seller does everything required by the contract.
8. Repair receipts
The best way to confirm that all of the agreed upon repairs were completed is to get contractor receipts for the work. The receipts also provide the buyer with contact information of the contractor so that they have someone to contact if there are problems related to the work that is noticed after closing.
My job as an agent includes obtaining receipts for all of the repairs that the seller agreed to make prior to our final walk-through and closing.
9. Home Protection Plan
Most of my buyers either have the seller pay for a home protection plan or they order a plan themselves prior to closing. Home protection plans are a good idea since they cover most mechanical repairs for a low deductible ($50-100 per service call).
In addition, air conditioning systems can not be tested during the winter months so there is no way to know for sure if there will be problems with the system if the house is purchased in colder months. Other problems simply don’t show up during the building inspection.
A home protection plan does not mean that a buyer won’t have to pay for any repairs, but it does provide substantial protection against costly surprises in the first year of ownership.
My job as an agent includes ordering a home protection plan for you if you decided you want one or the contract states that the seller will pay for one.
(NOTE: Full disclosure – Home protection plans do offer a referral fee to agents for ordering plans for their clients. I receive $25 when I order a plan for a client. For $25, it wouldn’t be worth having my clients question my judgment. If my clients didn’t feel the plans were of value, I wouldn’t encourage them to get one.)
10. Settlement statement
A day or two before closing, buyers will receive a copy of their HUD settlement statement. This statement itemizes all of the fees associated with the purchase and confirms the sale price. With the HUD statement in hand, the buyer will know exactly how much is needed for closing and can go get a cashier’s check or arrange for a wire transfer.
My job as an agent includes reviewing the HUD statement to make sure that there were no errors and then forwarding it to my clients.
12. Final walk-through
The final walk-through allows buyers to visit the property again shortly before closing to confirm that the property is in the same condition that it was at the time of the contract and that all contract agreements, includuing repairs, have been completed.
The walk-through is done within 4 days of closing in the St. Louis area. Most of the time, I meet my clients at the home the day before closing so that we can see it after the seller has moved out. If there are any problems (furniture left behind, repairs not completed, new damage to the house), I will contact the agent to resolve the problems before closing.
My job as as an agent includes meeting you at the home for the final walk-through and dealing with the other agent if there are any last minute issues.
13. Closing
Closing day is always an exciting day. Once the paperwork has been signed and the money for the purchase (down payment and the mortgage) have been turned over to the title company, the buyer gets the keys to the house.
Not all buyer’s agents join their clients at the closing table. Occasionally there are last minute problems that need to be resolved. I also want to make sure that my clients understand everything that they are signing, and often clarify what they are being told by the title company closer if I think something needs further explanation.
My job as an agent includes joining you for the closing to make sure everything goes smoothly.
Most home purchases close without problems when all of these details are taken seriously. If you are in the St. Louis area and would like to use a buyer’s agent that will protect your interests, I’d welcome a chance to talk to you.
Outside of the St. Louis area? I’m happy to help you find a great buyer’s agent in your area. There is no charge for my services in screening agents for you.
I do believe in full disclosure, so I want you to know that I will be provided a small referral fee by the agent if you end up buying a house from an agent that I refer you to. Since I only get paid if you actually like the referred agent and close on a purchase, it’s in my best interest to watch out for YOUR best interests and connect you with a great agent.
